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RegulationsJune 3 2007

IIF REPORT: ASIAN REGIONAL ECONOMIC OVERVIEW

IIF suggests Asian growth has peaked while an EFMA report assesses the international domination of the CEE region.
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After strengthening every year since 2001 from a low of 6% to a high of 8.6% in 2006, real gross domestic product (GDP) growth for the leading emerging markets in Asia is set to ease slightly to 8.2% in 2007, according to the latest regional economic report of the Institute of International Finance (IIF), the global association of 375 financial services firms.

The IIF notes: “The current six-year expansionary cycle for the leading emerging markets in Asia appears to have peaked, although there is considerable momentum in most economies to sustain strong growth over the near term.

Slightly slower growth in China and India this year (put at 10.5% and 8.5% respectively) will not diminish their remarkable dynamism or alter their rising influence on the rest of the world.”

The IIF forecasts that even with an easing in export growth China’s current account surplus will rise by $100bn in 2007 to $350bn, 11% of GDP. In India the IIF suggests that the stronger monetary restraint needed to control inflation, which is above 5%, will moderate GDP growth to 8.5% to 2007/08.

Looking at key issues the IIF’s Greg Fager, director of the IIF’s Asia/Pacific Department, noted: “The dependence on exports and a strong balance of payments have put central banks in the dilemma of limiting exchange rate appreciation to protect external competitiveness, while coping with the liquidity arising from market intervention. The emergence of China as a fierce competitor with a tightly managed exchange rate regime exacerbates the challenges regional policymakers face.”

EFMA REPORT

CENTRAL AND EASTERN EUROPEAN BANKING STUDY (CEEBS) 2007

Central and eastern Europe (CEE) is the most dynamic and profitable banking region in Europe with high expected growth rates. International banking groups with a bold CEE strategy are in a much better position to achieve higher profitability compared with niche players. The developing retail banking business will continue to offer huge growth potential, but market participants should be aware of changing needs and behaviour.

These are the three main results of the latest Central and Eastern European Banking Study (CEEBS) 2007 by the European Financial Management & Marketing Association (Efma) with support from RZB International and KBC Group.

Based on analysis of 700 banks in 19 CEE countries, the report notes: “Most CEE banking markets are dominated by international banking groups. But only five to 10 institutions can be considered major players with a notable market share. Among them are Italy’s UniCredit, Austria’s Erste Bank and Raiffeisen International, Belgium’s KBC and the only CEE-based bank, Hungary’s OTP.

On the other side, some 85% of the banking groups are engaged in only a few countries with a small market share. This niche position leads to a competitive disadvantage resulting in a profitability that is well below the market average.”

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